Retail realty: Better future ahead

SummaryThe slump in residential realty has taken its toll on retail developments.

The top eight cities have added just short of 5 per cent to their total mall supply in the first six months of 2013. This is a strong number considering each square foot of this addition is made more costly by the sluggish pace of growth in consumer purchase. Jaideep Wahi, director, retail agency, Cushman & Wakefield India says, “The total mall supply has risen by 2.9 million square feet added during first half of 2013 adding to the total stock at 65. 9 msf across eight major cities.”

Wahi and other analysts, however, are being cautious. With the announcement of the liberalisation of foreign direct investment (FDI) rules for both single and multi brand retail, 2013 should have seen catalogues opening fast. That has not happened so far.

Research by DTZ India shows that retail rental values have largely remained flat or grown by approximately 10 per cent over the last four quarters. There is a reason. Vacancy levels are high.

“Cumulative vacancy levels for top seven cities (Mumbai, Delhi NCR, Bangalore, Chennai, Kolkata, Pune and Hyderabad) stands at around 13 per cent in Q2 2013, up 2 per cent over the previous quarter,” says Anshul Jain, chief executive of the company.

According to him, there is what can be loosely described as a mixed response in the retail sector. Several retailers are cutting back on expansion plans, realigning their markets and stores. “Other the other side, international retailers such as VeroModa, Starbucks, Marks & Spencer are continuing with their expansion plans across many cities,” says Jain.

Malls in India

The first mall development, on the lines of what is found overseas, happened in Chennai in 1986. However, the majority of mall developments happened in 2000.

This was also a period when the economy underwent several stages in liberalisation, which fuelled a consumer boom. “During the pre-crisis period, the demand for retail spaces from retailers was robust, fuelled by high economic growth and rising consumerism. Consequently, most of the supply from retail developers across various Indian cities witnessed healthy absorption levels,” says Anuj Puri, chairman and country head, Jones Lang LaSalle India.

In 1997, after 100 per cent FDI in cash and carry / wholesale format was allowed through government approval route, players such as Metro AG entered the Indian market. Others such as Carrefour and Walmart also followed suit after wholesale cash and carry was approved under the automatic route. Since 2006, a number